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City of Milwaukee’s Fiscal Condition

Between a Rock and a Hard Place

August 2009

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This report presents an analysis of the fiscal condition of the City of Milwaukee government, applying a professional financial evaluation system of the International City/County Management Association (ICMA).  The city conducted this type of analysis internally during the 1990s, but it has done nothing similar this decade.  In March 2008, the Forum released an evaluation of the finances of Milwaukee County also using the ICMA methodology.

Milwaukee’s city government currently is experiencing serious financial difficulties.   The recession hit Milwaukee hard, as it has the region and state, and the negative impact on Milwaukee’s businesses and property values has had financial repercussions on city coffers.  In addition, the massive decline in stock prices has devalued pension investments. While ranked the second most secure public pension fund in the nation prior to the economic downturn, Milwaukee’s pension fund now has an unfunded liability of more than $700 million.

These financial challenges will require major changes to the city’s 2010 and 2011 budgets, and likely beyond.  How Milwaukee responds will reflect not only the inherent nature of the fiscal problems, but the city’s interpretation of them.  Two starkly different readings now receive prominence in public discussion.  The first is that the city’s problems are an abnormality caused by the national economic crisis, and that these problems will largely dissipate with the return of calmer economic waters.  The second is that the recession has aggravated but is not the cause of the city’s current problems, which are rooted in more fundamental financial deficiencies.

Resolving that question of interpretation requires a thorough examination and assessment of the city’s finances.  The evaluation system of the International City/County Management Association is an especially appropriate basis for such an analysis.  Unlike many budgetary methodologies that rely upon a comparison of past trends and projected trajectories in revenues and expenditures, the ICMA system goes beyond budget balance to examine defining fiscal characteristics and structure.  ICMA’s system incorporates multiple perspectives and time frames.  It seeks to understand immediate fiscal pressures but also the impact of short-term actions on long-term prospects.

ICMA created its methodology for evaluating local government finance in the early 1980s.  Since that time, many counties and municipalities have used this system to assess their fiscal health.  The system rests upon broad concepts and financial data and requires the selection and tracking of fiscal indicators to assess the underlying forces that may affect municipal finance.  It focuses on four types of solvency:

  • Cash solvency, which refers to a government’s ability to pay its bills and meet its payroll.
  • Budgetary solvency, defined as “a government’s ability to generate enough revenues over its normal budgetary period to meet its expenditures and not incur deficits.”
  • Long-run solvency, which examines future costs incurred by current fiscal decisions.
  • Service-level solvency, which is the “ability to provide services at the level and quality that are required for the health, safety, and welfare of the community and that its citizens desire.”

In addition to offering an objective context with which to consider the overall financial condition of Milwaukee city government, this report provides in-depth analysis of familiar issues that significantly impact that condition.  For example, as is well known, the state’s shared revenue payment to Milwaukee has not grown for more than a decade.  The report not only documents this trend, but also shows how other revenues have increased to replace state funds and assesses the feasibility of such resources continuing to fill this gap in the future.   Likewise, the report considers the consequences and implications of current expenditure patterns, and adds an additional layer of analysis by examining how Milwaukee’s expenditure patterns compare to those of other cities.

The overriding objective of this report is to promote an enhanced understanding of the causes and depth of the city’s fiscal challenges so that potential responses can be debated from a commonly agreed upon and factual frame of reference.  While such an understanding will not make the difficult decisions that are required any easier, it at least will ensure that policymakers focus on developing solutions, as opposed to arguing about the nature and scope of the problem.